Why bartering is back

Written by Glenn Wilkins

Razor Suleman is an unabashed barter booster, and it’s no wonder: he estimates that 5% to 10% of sales by his Toronto-based promotional-products distributor, Snap Promotions, are in exchange for goods and services. Barter has generated sales Snap might have missed doing a straight cash business, and it has cut costs, too. “We’ve been taking the dollars we save,” says Suleman, “and investing them back into the business.”

Working out so many trades would drain vital resources from most entrepreneurial businesses, which is why Suleman looks to barter networks for help. A barter network aggregates the goods and services of companies that would like to do more business in kind and, in exchange for those items, issues credits that a member company can use to “buy” other items in the pool. But as Suleman has discovered in nine years of bartering, such networks aren’t always as advertised: despite promising low fees and lots of liquidity, few of them have delivered the goods. “We started dropping them,” says Suleman, “because the time and energy to manage relationships with these non-profitable exchanges affected our bottom line.”

In theory, barter networks can help companies of all sizes shed excess inventory, whether your product is advertising space, steak dinners or skateboards, and help you buy what you need with little or no cash. In practice? Although many barter networks are robust, reputable marketplaces with brand-name members, more than a few shoddy, if not shady, players remain. Learn how to separate the good from the ugly, and you can make bartering work for you.

You could call Patty Falus one of the latter-day saints of the barter business, which has been active in Canada for about 20 years. In 2000, Falus founded Toronto-based The Barter Network, which last year facilitated trades worth $53 million and boasts 1,400 members, most of them small and medium-sized businesses. Those members pay The Barter Network a $295 membership fee, plus a 5% commission on each transaction they complete (as buyer or seller). Falus points to one of the beauties of barter, when it works: selling your product is almost effortless. “A barter exchange will bring you new business, when you can handle it, when you want it,” says Falus. “You designate what product you want to sell.”

Setting up a barter network is almost effortless as well. “The barriers to entry in starting a barter exchange are, if there are any at all, so low,” says Dave Holland, VP of The Barter Network. As a result, it’s easy for barter operators to attract members, who cough up the initiation fee and then are abandoned. Other marketplaces become illiquid due to poor management and uninterested members; to make up for low transaction volumes and revenue, their operators begin overpricing the goods in their bartering pools.

John Tanti, who founded B-Commerce in Toronto last year, adds that weak exchanges can morph into larger ones that inherit the original glitches. “Until they rectify those problems — and very few do,” says Tanti, “bad blood seeps into their exchange.”

Barter could be right for your firm if it wants to obtain goods and services without sacrificing cash flow, especially if yours is a seasonal business or experiences regular periods of reduced sales or excess inventory. Look for a provider that’s willing to discuss what barter can and can’t do, and that encourages questions about its current members, what they buy and sell, and in what volume. As Holland stresses, an exchange is only as good as its members: “You could have 50 million clients, but if they’re not trading within a suitable geographical area for you, or their products aren’t high-quality, high-demand, then the barter exchange is useless.” Longevity, liquidity and a list of recognizable clients are signs of a viable provider — as they are in most industries.

© 2004 Glenn Wilkins

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